* First interventions in over a decade
* Central bank governor says bank in it for the long term
* Crown falls 4.7 percent as central bank steps in
* HIGHLIGHTS: ; TABLE:
By Jan Lopatka and Jason Hovet
PRAGUE, Nov 7 The Czech central bank took
traders by surprise on Thursday with the launch of crown sales
on the open market for the first time in over a decade, to
weaken the currency and help stem a slowdown in inflation.
The bank's decision and subsequent action on the market,
confirmed by dealers and then later by the central bank, knocked
the crown down as much as 4.8 percent to a low of 27.000 to the
euro, the weakest level since June 2009.
The crown's drop was its biggest intraday loss versus the
euro on record.
Weakening the currency has long been seen as the remaining
option for the bank to stimulate the economy after it cut
interest rates almost to zero one year ago, but most analysts
had expected the bank to stay on the sidelines as growth
The central bank believes the weaker crown will add about
one percentage point to inflation, which would otherwise fall to
zero early next year, according to the bank's new forecast,
which tilted the board towards taking the extraordinary step.
The decision is a victory for Governor Miroslav Singer who
has argued for months for using the crown as the next tool to
ease monetary policy but until Thursday was unable to convince a
majority on the seven-member board to take action.
Singer told a news conference the bank had unlimited means
to intervene against its own currency and would not end the
campaign until it was very confident it would not have to start
"It is absolutely clear to us that we are in for the long
term," Singer said. "The question is not whether we stop
(intervening) in 2014, it is rather a question if it will be
The central bank said it would intervene "so that the
exchange rate of the crown against the euro is close to 27
A weaker exchange rate should raise prices and also revenue
for exporters, a big part of the $188 billion Czech economy.
Board members who have been opposed to interventions argued
that they could undercut people's spending power.
The bank did not reveal the vote count for the decision.
Singer made clear interventions would end only once
significant inflation pressures emerge, greater than the bank
normally needs to change interest rates. An exit may be combined
with a rate hike, he said.
"At the moment we do this, we will be very, very, very sure
that we do not have to return either to zero (on rates) or to
the intervention regime. We will wait for an accumulation of
very significant inflationary pressures," Singer said.
He confirmed the bank was in the market after dealers said
they saw the central bank selling crowns in the first
intervention since 2002.
"I think they did something about half a billion," one
dealer said early in the afternoon. By 1655 GMT, the crown
was bid at 26.971 per euro.
The bank (CNB) will release intervention volumes in its
regular monthly reports on foreign reserves and activities in
the market. Foreign reserves stood at 34.6 billion euros last
Vojtech Benda, chief economist at BH Securities, said the
bank could be more successful than last time it intervened to
halt a rise in the currency in 2002.
"Firming pressures on the crown weakened in the past two
years, whether it is foreign investments or stabilising trade
balance. The CNB can achieve a large impact on the exchange rate
using relatively smaller purchases of euros," he said.
While the economy is now recovering from a record-long
recession, inflation has remained subdued and some analysts see
falls in prices at the beginning of next year as tax hikes from
the beginning of this year are factored out.
Inflation slowed to 1.0 percent in September, below the
bank's 2 percent target. In an updated macroeconomic forecast on
Thursday, the central bank said it saw inflation reaching 2.2
percent by the end of next year, in its scenario using